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Asset price shocks and inflation in the Finnish economy

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  • Koivisto, Tero

Abstract

This study aims to explore the extent to which changes in wealth contributes to inflation utilizing a highly flexible non-Gaussian SVAR framework which minimizes the risk of distributional misspecification. We employ narrative sign restrictions to label the asset price shock and leverage the property of the Bayesian approach to compute the posterior probability of each shock satisfying these proposed restrictions. The structural shock associated with wealth has a positive impact on private consumption and GDP. The asset price shock is also positively related on consumer prices. Therefore, variations in wealth appear to stimulate the real economy.

Suggested Citation

  • Koivisto, Tero, 2024. "Asset price shocks and inflation in the Finnish economy," BoF Economics Review 6/2024, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:300078
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset price shocks; wealth effect; inflation; structural vector autoregression; non-Gaussianity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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